The Banking Royal Commission commenced public hearings in earnest on 13 March 2018 in what the Commissioner, The Hon. Justice Kenneth Hayne has referred to as the Round 1 hearings focusing on “consumer lending practices within the context of credit products such as home loans, car loans and credit cards”.
Now that more than 2,800 public submissions have been received and the first hearings have concluded, it is worth reflecting on the evidence presented so far. The inquiry has highlighted deep-seated cultural issues around consumer lending where internal lending personnel, brokers and other external parties appear to have engaged in practices that breach Responsible Lending Conduct Obligations (instances where it was or should have been apparent that the client would be unable to service the loan). It also highlighted practices that were fraudulent (including manipulation of loan documentation) or corrupt (bribes paid to lending personnel to approve loans that would not have been approved in the ordinary course). Other examples of reported potential misconduct include selling credit insurance to people who could not possibly claim on such a policy and banks offering automatic credit limit increases to people who could not afford it.
Without pre-empting the outcome of Justice Hayne’s enquiry, however on the basis of the evidence presented to date, the Royal Commission has highlighted opportunities for improvement regarding practice and culture within the Australian Financial Services sector, particularly in relation to conduct within the banking sector. Some of these areas for improvement will involve banks taking steps to better mitigate the risks of fraudulent or other misconduct within their internal and external business development channels. This includes tightening, monitoring and analysing lending activities and revisiting the way in which these networks are incentivised.